Paying for performance: The role of policy in energy storage deployment

Blake Shaffer, Mokhtar Tabari

Abstract

Energy storage has long been viewed as a solution to the growing challenge of intermittent electricity supply. However, energy storage deployment remains limited despite falling costs. One reason for this is current market rules inadequately compensate storage for all the value it can provide. A recent policy change in the United States seeks to rectify this situation by requiring grid operators to compensate providers of frequency regulation services based on speed and accuracy. This seemingly subtle change has a beneficial effect for fast-acting storage resources. Using a difference-in-differences method, exploiting the fact the Order covers a subset of U.S. electricity regions, we find a greater than 30% increase in the number of storage projects in the covered regions. This result highlights the importance of getting prices right and the material effect properly reflecting the value of storage can have on storage deployment.